Bolstered by better-than-expected individual income and sales and use tax collections, Arkansas' general revenue collections in October increased by $69.5 million, or 12.3%, over the same month a year ago to $634.9 million.
October's collections beat by $17.6 million, or 2.8%, the state's forecast that was increased on Oct. 19, the state Department of Finance and Administration said last week in its monthly revenue report.
"To be above that revised forecast is good news for our state and reflects the strength of our economic recovery that we see," Gov. Asa Hutchinson said.
General revenue in October set a record for the month, beating the previous record of $565.5 million collected in October 2020, said Whitney McLaughlin, a tax analyst for the finance department.
The revenue report largely reflects September economic activity and "it still shows continuing recovery in a broad group of sectors and continued growth in the sectors that already experienced rapid rebound last year," said John Shelnutt, the state's chief economic forecaster.
Tax refunds and some special government expenditures are taken off the top of total general revenue collection, leaving a net amount that state agencies are allowed to spend. Net general revenue helps finance state-supported programs such as public schools, human service programs, public colleges and universities, and prison programs.
The net in October increased by $62.7 million, or 12.9%, over year-ago figures to $548.8 million, and it outdistanced the revised forecast by $15.8 million, or 3%, according to the finance department.
Hutchinson said in a written statement, "The national economic outlook remains uncertain and for this reason we continue to budget cautiously with 20% of our annual revenues now in a long-term reserve account."
The state's long-term reserve fund balance remained at $1.201 billion, finance department spokesman Scott Hardin said.
FISCAL 2022 SO FAR
October is the fourth month of fiscal 2022, which started July 1 and ends June 30, 2022.
During the first four months of fiscal 2022, total general revenue increased by $30.5 million, or 1.2%, over the same period in fiscal 2021 to $2.58 billion and outdistanced the state's revised Oct. 19 forecast by $17.6 million, or 0.7%.
Net general revenue increased by $43.6 million, or 2%, over the same period in fiscal 2021 to $2.27 billion and exceeded the revised forecast by $15.8 million, or 0.7%.
Comparisons with year-ago collections are distorted by the shift of the individual income tax payment deadline in 2020 from April 15 to July 15 as a one-time change for pandemic relief efforts. This resulted in two income tax filing dates in fiscal 2021, the finance department noted.
Earlier this year, the Republican-dominated General Assembly and Hutchinson enacted a fiscal 2022 general revenue budget totaling $5.849 billion, including a $17.1 million allocation to the restricted reserve fund.
On Oct. 19, the finance department increased its projection for net general revenue by $246.2 million, to $6.11 billion, in the current fiscal year, projecting a year-end surplus of $263.2 million above the fully funded Revenue Stabilization Act. That act prioritizes the distribution of general revenue to state-supported programs. The projected surplus includes $17 million previously projected as surplus revenue, state officials said.
The finance department on Oct. 19 also boosted its forecast for fiscal 2023 net general revenue by $298.5 million, to $6.4 billion. The general revenue budget that Hutchinson proposed for fiscal 2023 is $6.01 billion with an additional $54.9 million to transfer to the long-term reserve fund, according to the finance department.
The General Assembly is to convene in a fiscal session starting Feb. 14 to consider setting a general revenue budget for fiscal 2023.
The increased general revenue forecast on Oct. 19 doesn't reflect the effect of proposed income tax cuts that will be considered in a special session, said Shelnutt.
Hutchinson said earlier that the special session probably would be called "sometime after Thanksgiving," but he won't call the Legislature into session until he has confirmed sufficient votes to approve the proposed cuts.
"I want to make sure that the main item of the agenda has broad support before I bring them in," Hutchinson said, adding that he wants to provide lead time for the special session with Thanksgiving coming up.
House Revenue and Taxation Committee Chairman Joe Jett, R-Success, and Senate President Pro Tempore Jimmy Hickey, R-Texarkana, said last week that the proposed income tax cut package is projected to reduce state general revenue by roughly $500 million a year, after it's fully implemented.
The package includes: Reducing the top individual income tax rate from 5.9% to 4.9% and the top corporate tax rate from 5.9% to 5.3%. (The top corporate income tax rate will drop from 6.2% to 5.9% on Jan. 1 under a law enacted in 2019.) Consolidating low- and middle-income tax tables.
Establishing a $60-per-filer low income tax credit.
Adjusting the standard deduction by the consumer price index.
According to the finance department, October's general revenue collections included: A $46.7 million, or 17.7%, increase in individual income tax collections over the same month a year ago to $310.7 million, which exceeded the revised forecast by $10.4 million, or 3.5%.
The largest category of individual income tax collections is withholding.
Withholding increased by $28.5 million, or 13.5%, over a year ago to $238.8 million, which beat the forecast by $2.4 million. There was one more Thursday payday than a year ago, and the increased withholding largely reflects more people working and working longer hours, plus increased wages for employees in high demand, said Shelnutt.
The individual income tax collection from returns and extensions increased by $14.6 million over a year ago to $57.8 million, exceeding the state's forecast by $5.9 million.
Collections from estimated payments increased by $3.6 million over a year ago to $14 million, which outdistanced the forecast by $2.1 million.
A $14.5 million, or 6%, increase over the same month a year ago in sales and use tax collections to $253.7 million, which is $2.4 million, or 1%, above forecast.
The department noted that major reporting sectors of sales tax collections displayed mixed results compared to a year ago, with high growth in the sectors in which there are later recoveries such as restaurants and personal services and lower growth in sectors that rebounded earlier from pandemic, such as retail and car sales.
Sales tax collections from food services and accommodations increased by $3.6 million, or 19%, over a year ago to $22.7 million, and sales tax collections from retail increased by about $562,000, or 0.6%, over a year ago to $100.9 million. Motor vehicles sales tax collections declined by $1.56 million, or 5%, from a year ago to $29.6 million, state officials said.
A $5.5 million, or 18%, increase in corporate income tax collections over October 2020 to $36.1 million, which exceeded the forecast by $1.9 million, or 5.4%. Most of the gain was in quarterly corporate estimated payments and extensions.